Clawing your way out of debt – On the Money with Jarryd Neves

Jarryd Neves
On the Money. Budding stock market investor Jarryd Neves, of BizNews, sends out an invitation to everyone who wants to ask questions about share investing – but is too embarrassed to ask. Write to [email protected] And tune in for his regular Monday column: On the Money

It starts off innocently enough. Perhaps you charge a pair of shoes or an expensive meal to your credit card. No matter, you tell yourself – it’s not that much and besides, it can be paid off at the end of the month. Then it happens again, only this time it’s a far bigger purchase – a fancy TV set or smartphone you just couldn’t resist.

A bigger purchase, yes – but you can just pay it back, right? Out of the blue, an unforeseen emergency occurs – maybe your car breaks down or you have a medical set back. Suddenly, you find yourself being slowly enveloped in debt, asking yourself, “well, how did I get here?”

It’s all too easy. Let me just say, that I’m not referring to car repayments, student or home loans – what’s known to some people as revolving debt. Before we look at ways to live a debt-free life, let’s discuss how it can negatively impact other aspects of your financial life.

Not only will it cause great stress and myriad sleepless nights, but debt makes it far more difficult for you to obtain essential loans – those you’d need to finance a car or buy a home. Lenders will look at your less than desirable repayment record and offer you undesirable loan terms – or nothing at all.

The first step to ridding yourself of debt is to press the reset button on your finances. Education is essential when it comes to your personal finances. Get to grips with your income, what your expenses are and what you owe on your credit cards, clothing accounts and personal loans. If you haven’t done this yet, take this opportunity to set a goal for yourself – when can you pay your debt off and how much can you afford?

Of course, this will come with a drastic lifestyle change – sacrifices are essential if you want to conduct a bit of financial spring cleaning. Factor loan repayments into your monthly budget and pay off as much as you can. It’s also important to start an emergency savings fund (if you haven’t already) as another unforeseen setback will just push you back into debt.

Most lenders are happy to have you pay the minimum monthly amount. Realistically, this could take years to pay off – and you actually end up paying considerably more than what you owe, courtesy of interest. If you can, try to pay off as much as you can afford each month.

Paying off debt can be challenging, and there will be times where you feel demotivated – as if there’s no way out. A number of financial experts recommend using the “snowball method” when paying off what you owe. Many are overwhelmed by the amount of money they owe, and prefer to ignore it altogether. But let’s say you owe R4 000 on a clothing account and R10 000 and R25 000 on two credit cards, respectively. Start with the smallest payment first, as you settle into your new financial lifestyle. Not only is it the easiest payment to dust off, but it will keep you motivated to pay the rest of your debt off too.

Once you’re out of debt, the journey isn’t over. Now that you’ve regained some of your financial freedom. you may feel the urge to splurge on something you want or, perhaps, feel you deserve. While there is certainly nothing wrong with rewarding yourself (after all, we live once) staying out of debt is the most important thing in your financial life. At this stage, it’s also worth seeking professional help if you feel you may have a spending problem. Many people feel the need to keep up with their peers, financing a lifestyle they cannot afford – for other people’s eyes.

Debt is a cruel and nasty trap. Sometimes, it’s essential – life is unpredictable – but it’s imperative that you use credit cards and personal loans for emergencies and dire situations. Charging a pair of shoes may seem innocent enough, but it can spiral out of control if you lack the necessary discipline.

Have a question about share investing? Write to me at [email protected].

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